Stewardship vehicles for garden communities

Stewardship models vary and there is insufficient understanding of the options available. Too often, insufficient attention is paid to stewardship models until after planning permission has been secured and development has commenced.

Focusing on end and ongoing delivery, and the step by step strategies on how to get there, can be the difference between either a flourishing, sustainable, viable new community or an unsuccessful management structure, not funded by a variety of income streams so fully and overly reliant on service charges to pay for stewardship.

When done well, a well-thought through stewardship model can bring a multitude of benefits to all parties. Consideration needs to be given to:

• different entry, exit and, where appropriate, 'hold' delivery routes for landowners and developers over what can be a long, often multiple decade, development programme;
• flexibility of the stewardship structure. This is crucial to enable new income streams and technologies to be integrated into the scheme and leveraged, and also to help allow the community to focus in the future on how it wants to improve, enhance and introduce new facilities, services and nature-based opportunities;
• community involvement - facilitating representation in the stewardship structure including voting rights or other forms of participation as appropriate, and how that may evolve over time as the community grows;
• funding. Ensuring sustainable budgets and income streams for capital and operational expenditure requirements for community facilities and services may require masterplan and design adaptions, as well as reconsideration of traditional asset ownership assumptions;
• transparency and certainty around service charges allowing evolution, including additional or alternative income streams to help supplement costs and inflationary impacts;
• staffing, skills and capacity needed to run the stewardship organisation, and consideration of outsourcing options.

Funding models for stewardship organisations

Early consideration of the role and scale of the stewardship organisation is vital to its successful financial planning and delivery.

The provision of communal facilities within the garden community will guide the scope of the future stewardship organisation and shape the financial requirements - both in terms of capital costs for the initial construction and the revenue costs for the ongoing maintenance.

Developers and landowners promoting garden communities should plan for their stewardship organisation during pre-planning and the planning application stages. Sufficient consideration should be given to the assets and facilities that will pass to the stewardship organisation or other stakeholders, and the developer or landowner's exit strategy. Consideration should also be given to the role of stewardship in development design codes and masterplans, energy and net zero strategies, data strategies and approach to biodiversity net gain (BNG).

Stewardship arrangements should be sufficiently flexible to allow evolution over time given the community, its assets and management approach will need to adapt over time to respond to changes in technology, governance, regulation and community preferences. Placing unnecessary constraints and imposing extensive detailed requirements on the stewardship organisation at grant of permission stage may well prevent the aspiration for a vibrant and viable community. Instead, suitably drafted planning obligations can secure sufficient certainty for a local planning authority, by stipulating the submission of some relevant areas of the business plan for the stewardship organisation to be approved by the local planning authority and establishment of overarching stewardship outcomes.

A typical new build housing-led scheme would usually involve 'green' and 'blue' infrastructure maintained through a site-specific management company and paid for through service charges, levied on the residents. The ambition of garden communities means there are a potentially wider group of community facilities that could fall to the stewardship organisation and a requirement for a more creative approach to the sustainable funding of such entities.

The aim at the outset of any stewardship organisation should be to maintain the communal facilities to standards appropriate for a garden community in a financially self-sustaining manner without inappropriate reliance on the public purse. This will entail the identification and costing of those facilities earmarked for inclusion within the stewardship organisation, estimates of running costs and identification of the corresponding sources of income through which the organisation can operate and facilities be created and maintained. Planning should begin while the planning application is evolving, and this data will then inform the financial model and early-stage business case for the stewardship organisation once the management and administration costs have also been factored.

The creation of the business model will not only identify whether the sources of income are capable of covering the annual costs in the long term, but also whether the model runs at a financial deficit in the years whilst the site is getting established and reaching full occupancy. This in turn will guide the thinking around the need for upfront capital grant requirements, developer contributions or other sources of potential injections of capital.

Access to well-maintained communal facilities and publicly accessible realm is part of what sets garden communities apart. The creation of a fully costed business model, with locally tested income streams and administration cost assumptions, should provide evidence of the overall deliverability of the communal facilities and in doing so help demonstrate the deliverability of the overall vision.

Core considerations

To establish, fund and operate a successful stewardship organisation, thought must be given to some important issues.

This includes the functions of the stewardship organisation and sources of primary funding – particularly when initial up-front capital expenditure is required to help fund the provision of strategic open space, other public property or private land, community facilities and utility infrastructure. A blend of funding could be obtained from developers and landowners, local authorities and parish councils.

The pros and cons of the various legal structuring options should also be examined. The choice between the various unincorporated and incorporated bodies that could be established depends on the proposed functions, the assets that are being managed, the type of finance arrangements and governance approach being taken to the stewardship organisation, as well as the tax position. Options include unincorporated bodies such as unincorporated associations, trusts or partnerships and incorporated bodies such as private companies limited by guarantee or by shares, charitable incorporated organisations, community interest companies and registered societies, such as cooperatives or a community benefit society. A bespoke structure can be formulated to blend the appropriate options into the “best fit” for an individual garden community.

Governance is another important consideration. The governance options are informed by the identity and percentage control the “shareholders” of the stewardship organisation wishes to have and should be tied into the overall project governance. Ideally, the vehicle will be run by representatives from the bodies who have contributed to the primary funding and who retain a stake in the success of the garden community.

It is desirable for the governance arrangements to provide for the involvement of:

• all of the local community, such as via a parish council or neighbourhood forum;
• landowners and developers that would otherwise consider management company arrangements; and;
• the host local authority or authorities, as long-term partners in the project.

To achieve local buy-in, thought should be given to how best to capture the views of existing local communities and future residents. By way of example, a board of a stewardship organisation might involve an existing or new parish council or neighbourhood forum, a long-term development partner, and a local authority.

Thought must also be given to how regular income may be generated and captured from garden community assets and the best stewardship organisations for that purpose. More information on this important aspect is set out below.

Income streams for stewardship organisations

One of the main risks with stewardship organisations is that they may not have enough income to deal with the responsibilities they wish to take on. In particular, sometimes endowment or start-up funding is sufficient to establish the stewardship orgnisations and provide the community facilities and public and private land but not sufficient to deal with all of the operational costs or the refurbishment costs of the capital assets. However, financial models are available to account for various income streams, including those subject to regulatory requirements.

Income might be derived from:

• service charges from residents and businesses;
• ongoing Section 106 or CIL contributions;
• grants, loans, endowments or bonds from developers;
• profit share from community energy service companies (ESCOs) and multi-utility service companies (MUSCOs) - more below;
• profit share from data trust - more below;
• profit share from community estates events company;
• BNG Habitat Bank income;
• estate landlord income;
• income from community facilities;
• parking revenue, where local parking areas not adopted;
• profit share from a community EV charging network, fibre network, community car park kiosk network or Car Club income, with a relevant concession agreement in place;
• advertising income - physically along privately controlled areas along highways, parks, publicly accessible realm and 'intelligent' street furniture, and digitally from place-based app services.

Community data trust income streams for stewardship organisations

A community data trust is a legal entity that can provide independent stewardship of data. It is a flexible and sophisticated form of data sharing arrangement that permits organisations - for example landlords and tenants, residents and businesses and scheme supply chain - to share data relevant to the new community under a common and defined set of purposes to create a 'place-based' data model as a community asset.

In the context of a garden community there are a variety of purposes: optimising resident, customer and visitor experiences within the garden community, as well as enabling the generation of new income streams utilising garden community data to provide a valuable funding stream for its stewardship.

A community data trust is established as a special purpose vehicle (SPV), in which the stewardship organisation may have a share. Utility companies, the local authority, public transport providers, EV network and Car Club providers, community voluntary groups and major landowners/developers may also be shareholders, depending on their degree of data provision and active involvement. A data trust is run like a 'data manco' with a board of governance - typically the same as that of the stewardship organisation, with the addition of a 'data steward' who is trained up and experienced in data regulation requirements, data ethics and appropriate data monetisation approaches. These can also be provided by an outsourced service provider.

The data trust will hold, or be able to grant access to, wide, diverse, high quality data sets from multiple sources. The data trust acts as the custodian or steward of that data, in a similar way to other legal structures that are used to look after and make decisions about assets.

The data trust and its board will ensure regulatory compliance and reputational safeguarding, including with data protection requirements. Depending on the model, the data itself need never be 'held' by the garden community or its stewardship organisation, but rather by the data trust. The stewardship organisation can receive a share of the revenue generated by the data trust.

ESCOs and MUSCOs integrated with stewardship organisations

ESCOs and MUSCOs - energy or multi-utility micro-grid companies - operate to capture a share of the revenue for the owner(s) of the company which would otherwise be wholly received by a utility provider. These supply service arrangement companies typically work best as set up and operating independently of stewardship organisations through a SPV structure, but they can be related entities in the sense of some shared management and governance arrangements.

For optimal financial benefits for the stewardship organisation - and, in some instances, for the ESCO or MUSCO itself - the stewardship organisation could be a shareholder of the SPV. The optimal model will depend on the specific circumstances, but there are tried and tested models across the UK and Pinsent Masons has been involved in establishing many successful examples.

In an example heat and power ESCO, rooftop and other solar panels installed on homes and commercial businesses generate electricity which is fed back into a local battery storage scheme operated by the SPV. This energy can then be supplied to residents and businesses within the development at a reduced cost to the customer, with additional energy needs catered for by purchasing energy from the National Grid at appropriate price points.

Another benefit of ESCOs and MUSCOs being part of the stewardship of garden communities is the sustainability benefits they can bring. Examples might include the provision of renewable technologies for power generation – such as solar, combined heat and power or air source heat pumps; reduction in water usage and increase in greywater recycling; and improved connectivity leading to carbon footprint reductions. Given the drive towards ‘net zero’ emissions, these are increasingly important areas of focus, which can also give the community a sense of ownership.

Delivering successful stewardship organisations for garden communities (15-page / 4.23MB PDF)